Cotton futures fell on Tuesday, following a decline in equity markets weighed down by renewed fears that the coronavirus will lead to global economic slowdown even as the US Federal Reserve cut interest rates to help cushion the impact.
Cotton contracts for May fell 0.45 cent, or 0.7%, at 62.93 cents per lb as of 2 PM EST (1900 GMT). It traded within a range of 62.71 and 65.07 cents a lb. On Monday, the natural fiber posted it best day in more than four months, rising more than 3%, on a weaker dollar and mill buying.
"The (cotton) market is psychologically tied to the Dow Jones and related stock markets," said Keith Brown, principal at cotton brokers Keith Brown and Co in Moultrie, Georgia. "Certainly, if we get strong export sales on Thursday, that will help the market but the market really cannot blossom until stocks get calmer."
Both the Dow Jones Industrial Average and the S&P 500 dropped more than 1% on fears that even an interest rate cut by the US Fed might not be enough to stave off the economic impact of the coronavirus outbreak. The Fed said it cut rates by a half percentage point to a target range of 1.00% to 1.25%. In a news conference following the decision, Fed Chair Jerome Powell said the coronavirus would weigh on the US economy for some time.
"To the detriment (of cotton) is a weaker stock market and the overall fear that the demand for cotton is going to suffer with all the coronavirus uncertainty," said Jack Scoville, vice president at Chicago-based Price Futures Group. Limiting cotton's decline, the dollar index slipped to a fresh 6-week low after Fed rate cut. A weaker dollar makes cotton less expensive for buyers of the natural fiber in other currencies. Total futures market volume fell by 29,041 to 31,592 lots. Data showed total open interest gained 2,269 to 202,008 contracts in the previous session.
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